Isa investments for income

lottielane

hello there,

I have been following this forum for a while and am very impressed with the knowledge of some posters!! I have been managing my own and my husband's S&S isas for a few years and also my own SIPP. This I don't contribute to as have been using my isa instead. Am investing for income as we are due to retire in 4 - 5 years. We have no mortgage and my husband will get a decent final salary pension.

Am hoping that someone with more knowledge than me could provide a critique of our portfolio. I have tried to get independent advice but in the first instance was advised to hand my money over to a company to manage and in the second instance was told the advice would cost £2000. So decided to continue down the diy route but it is a bit of a minefield.

We have been saving hard for a number of years and continue to save around £2000 each month. Please can someone tell me if I'm taking too much risk, not enough risk etc. My husband has no interest in finance and leaves all decisions to me. So am feeling the weight of responsibility.

My hope is to generate around 13 - 15k each year from isas. Current holdings are below with the sums invested. Really would be very grateful for any feedback at all.

Artemis global income - 28.2k
Artemis high income - 12k
First state Asia Pacific leaders - 5.5k
Kames property paif - 43.7k
Rathbone income - 20.5k
Schroder Asian income maximiser - 10.5k
Troy Trojan income - 29k
IP distribution - 30k
Royal London sterling extra yield - 18.5k

SIPP is

City financial absolute equity - 11.3k
M&G optimal income - 13.5k
Majedie income - 21.8k
24 dynamic bond - 6.6k

Thank you in advance.

Lottie

missile

Would you like to share last years returns for each of those investments?

talexuser

As a ballpark, for 14k income, assuming a safe return of 4%, you would need a pot around 350K, and will still get a little inflation proofing in the capital. Higher returns might reduce capital slowly, which may not be a problem depending on how long you need the income. You are well on the way with around 250k and a balanced portfolio should not be too difficult to arrange, bearing in mind we are probably in line for a market correction at some time.

badger09

May I ask why you have chosen not to contribute to your SIPP, and so given up the tax relief?

lottielane

Many thank your for replies so far.

Not sure of the exact return as have changed funds round a bit. Think it is around 7% overall for last year. Since they changed the rules on pensions I have been thinking about putting a lump sum into my pension but haven't as am not sure what to put into! Have been toying with the idea of a Japanese fund but not taken the plunge yet.

Am worried about making a mistake and the more I read re asset allocation rebalancing etc the more worried I become!!

badger09

If you're confident that the funds you have already are right for you, it seems an odd decision not to invest in them, or similar, (or different for diversity) in your SIPP.

You're giving up free money.

bowlhead99

If you don't know what to invest in, invest in everything.

Unless you have a specific goal, in which case you should probably invest in things aligned to that goal, like income generation.

However, you don't actually need "income" at the moment because you're not taking any income out of the ISAs because your goal for now is to increase rather than decrease the overall size of the ISA wrappers., right? So you are only re investing the generated income anyway, so don't need to focus exclusively on income-generating funds as some sort of early "practice" for retirement. You could use other fund types too, as presumably you hope your retirement will be a long one.

It may seem like income funds might be less volatile as you approach retirement, but it's still perfectly possible for them to lose a chunk of value if interest rates rise in a few years and everyone isn't madly diving into them to chase yield.

Putting off investing in a whole geographic region e.g. Japan, or USA or Europe, in favour of UK and Asia ex-Japan is poor investing. Each have had strong gains over last 2-3 years so you are not doing yourself favours if you avoid all these gains while waiting to "take the plunge" and then finally take it, just in time for a crash

If you worry about asset allocation and rebalancing rather than actually getting on and doing asset allocation and rebalancing, again you're not doing yourself favours. A broad asset allocation can be a defence against portfolio dips from one area.

Perhaps you could seek out the services of a professional, i.e. IFA after all. If you spend a few thousand on that because your husband is not interested in learning how to give you a hand and you don't want the weight of your joint futures to rest on just your own shoulders, perhaps no harm done, money well spent. You might sleep easier if your portfolio crashes despite the best efforts of an IFA, rather than if it crashes after you asked some anonymous forum members how they would do it.

As per badger09, adding to your SIPP seems a no brainer, as your £50k odd will only give a couple of thousand taxable income in retirement and you probably have more income tax allowance than that once you are not working and your ISA income is not taxable of course. Also is there no employer scheme you could use? If there is, you can balance fund choices in there with your own SIPP and ISA choices in terms of total pot allocation (although many don't).

BLB53

I think the first thing I would look at is asset allocation across your sipp/isa. What is the current balance between equities and fixed interest/bonds?

Equities will provide a rising income but are more volatile - as the name suggests, fixed interest securities provide a fixed income and are generally less volatile. A classic allocation is 60% equities and 40% bonds/FI.

The other aspect would be the charges on your existing investments - do you know what each one charges? If not, its worth checking and if above say 0.75% for example, consider some alternative lower cost options. The obvious would be the eg Vanguard trackers which are very popular. Also some investment trusts can be a very good low cost option for income seekers. I hold City of London, Edinburgh, Murray Intl.

If you have not already done so, take a look at the excellent https://www.monevator.com for more on asset allocation/trackers etc. and also https://www.diyinvestoruk.blogspot.co.uk for income from investment trusts etc.

With the £12K pa you are putting away, you will have around £300K in sipp/isa by the time you are ready for retiring which could provide an income of around £12K pa assuming you did not touch the capital. Depending on your asset allocation, the income should rise each year to keep pace with inflation.

AlanP_2

Enter your current holdings into the Portfolio tracker on Morningstar (or somewhere similar) and see what your Asset Allocation and geographic spread looks like if you aren't tracking it already via Excel or something.

This will also track price movements so and thus the return you are getting.

Do you have a cash holding as well?

kidmugsy

lottielane wrote: »

I have been managing my own and my husband's S&S isas for a few years and also my own SIPP. Am investing for income as we are due to retire in 4 - 5 years. We have no mortgage and my husband will get a decent final salary pension. My hope is to generate around 13 - 15k each year from isas.

Current holdings are below with the sums invested. Really would be very grateful for any feedback at all.

Artemis global income - 28.2k
Artemis high income - 12k
First state Asia Pacific leaders - 5.5k
Kames property paif - 43.7k
Rathbone income - 20.5k
Schroder Asian income maximiser - 10.5k
Troy Trojan income - 29k
IP distribution - 30k
Royal London sterling extra yield - 18.5k

SIPP is

City financial absolute equity - 11.3k
M&G optimal income - 13.5k
Majedie income - 21.8k
24 dynamic bond - 6.6k

I speak as an amateur, but this would be my thinking. Even though you will retire in 4-5 years, you will want the ISA assets to generate income indefinitely. You've got about £200k there, so getting out £13k p.a. means you want a yield of 6.5%. Phew! If you do manage to generate that you must expect to get no capital growth in the ISA. You must also expect the capital value to shrink if there is a general increase in interest rates - that may be long deferred but will presumably eventually happen.

Unless you plan to buy an annuity soon, it would be logical to aim for growth in your SIPP so that it could contribute usefully to income later on in life, compensating (you hope) for capital losses in the ISAs. So unless you plan to start withdrawing from the SIPP soon I'd be looking for growth there. But perhaps not immediate growth: if you think that the markets are heading for a fall you might want to invest in funds or investment trusts that aim first to preserve your capital, and only thereafter to grow it. Personal Assets Trust, and Ruffer Investment Company, would be possibilities. One particular tactic might be to hedge against the fall in bond prices that would result from a general rise in interest rates. Artemis Strategic Assets claims to do that. That might be worth looking into. An alternative strategy would be to decide that you can't "time the markets" and just invest the SIPP in some passive market tracker: for example, from Vanguard or their competitors. See the monevator blog for discussions of trackers. One beauty of them is that they are cheap - you are not paying heaps of your money to an investment manager who might do no better than the tracker anyway.

My other thought would concern tax efficiency. Are any of your investments getting income from bonds but paying tax on it before passing it on to you as dividends? If so, it might be better to split the money yourself between an investor in, say, high dividend shares, and one in bonds. That way the income from the bonds would reach your ISA without having been taxed.

mark13

Interesting reading. Thanks for posting.